Ethereum (ETH) On-Chain Trading Signals

Ethereum is the second-largest cryptocurrency in the world by a significant margin, falling only behind Bitcoin. It was created in 2015 by the brilliant visionary Vitalik Buterin and a few other blockchain experts including Charles Hoskinson (the creator of Cardano) and Gavin Wood. Ethereum was the first general-purpose blockchain, using smart contracts.

Smart contracts are contracts coded into the blockchain that execute automatically when predetermined conditions are met. They enable new utilities such as NFTs and decentralized finance (DeFi) platforms. DeFi platforms let you lend, borrow and stake for interest without going through traditional finance channels. This innovation helped launch Ethereum and make it the most popular general-purpose blockchain by a long shot despite the attempts of many competitors. 

Even though Ethereum is so large, it can be hard to predict its future price movements. However, Ethereum on-chain trading signals can be useful to help inform your trading decisions. They are not perfect, but they can be useful in forming educated guesses, especially in the medium and long term.

Ethereum On-Chain Trading Signals Analysis

Holders Making Money at Current Prices

The Holders Making Money at Current Prices metric isn’t used as much as it should be, possibly because it isn’t the easiest to calculate using a price graph. IntoTheBlock takes every wallet with Ethereum in it, looks at each trade and calculates the wallet’s Ethereum cost basis. Then it finds the percentages of wallets with a cost basis above, at and below the current price.

Ethereum has one of the best values in this metric and beats out Bitcoin with a large percentage of wallets in profit. This is likely a very bullish trading signal because it seems like most paper hands holders — traders who sell at the first sign of trouble — have already closed their positions. 

Concentration by Large Holders

Concentration by Large Holders is a useful trading signal that isn’t used enough by Ethereum traders. It is calculated by adding up all the Ethereum holdings in large wallets that hold 0.1% or more of the coin’s circulating supply. Ethereum has a circulating supply of about 122.1 million coins. This means that the holdings of any wallet holding about 122,100 ETH (worth about $180 million) are counted as large holders in this metric. Ethereum’s concentration by large holders is surprisingly large for such a massive cryptocurrency. If the top Ethereum holders were to decide to sell, the price would suffer dramatically. However, many other tokens are much worse. For example, Shiba Inu’s concentration by large holders is about twice as high as Ethereum’s. 

Price Correlation With Bitcoin

Even though Ethereum has started to put up a fight for the top spot, Bitcoin is still the biggest crypto by a large margin. Every fluctuation in the price of Bitcoin affects every cryptocurrency (except for some stablecoins like USDT or USDC) but the degree of this correlation can vary over time and from crypto to crypto. Ethereum is heavily correlated with Bitcoin even though it is so large on its own. It is less correlated than many other altcoins, such as FTT, which is a rounding error away from a 100% correlation.

Holder’s Composition by Time Held

The Holder’s Composition by Time Held trading signal is simple. IntoTheBlock looks at every wallet holding Ethereum and averages the amount of time each wallet has been holding the coin. Generally, the longer investors hold a token, the better. It often means that most investors have a lot of conviction in the token. Ethereum’s holders seem to be bullish on their investments with more than 60% of wallets holding it for more than 1 year. 

Exchange Inflows and Outflows

Exchange Inflows and Outflows are important trading signals. Centralized cryptocurrency exchanges are the only crypto off ramps to fiat currencies (USD, EUR, GBP). This glaring issue blocks the full decentralization of the crypto space, but it allows traders to track the flow of cryptos on and off the exchanges. A net positive flow of crypto into a centralized exchange is a bearish signal because it means more people are getting ready to sell their tokens for fiat. When the outflow of crypto from centralized exchanges is greater than the inflow, this bullish signal means that more crypto is being stored away from fiat offramps. 

Is Now a Good Time to Buy Ethereum?

Now may be a great time to buy Ethereum, but it is impossible to be sure. Ethereum, along with the rest of the cryptocurrency market, is still down heavily from geopolitical crises of 2022 and interest rate hikes. Now may be a fantastic time to pick up Ethereum and other cryptos at a discount, but there could be further downside as well. The crypto market has historically been relatively predictable in the long-term with a cycle of clear bull and bear phases roughly coinciding with Bitcoin halvings.

How to Buy Ethereum?

Because Ethereum is such a large and popular cryptocurrency, it is one of the easiest to buy. Ethereum trading is supported by many of the best crypto trading platforms including eToro, Robinhood and Webull. Before you can start trading Ethereum or other cryptos, you need to verify your identity with the exchange. This process generally requires you to provide your address, Social Security number and a picture of your driver’s license (or other valid ID). As soon as your identity is verified, you can deposit fiat currency or another crypto and buy Ethereum.

How Does Ethereum Fit Into the Bigger Picture?

Ethereum is a monolith in the crypto space and may even rival the importance of Bitcoin relatively soon. Bitcoin is still the largest crypto and is more well-known than Ethereum; however, it doesn’t have the same utility. Ethereum’s general-purpose nature enables much of the innovation in the crypto industry today and is a large part of its increasing adoption. Ethereum may be in a bit of a slump after the whole market crashed this year, but it seems like it has potential and could overthrow Bitcoin as the top crypto eventually.